CA NITIN GOEL AS 20 CH 10Q

EARNINGS PER SHARE

INTRODUCTION

The objective of AS 20 is to describe principles for determination and presentation of earnings

per share which will improve comparison of performance among different enterprises for the
same period and among different accounting periods for the same enterprise.

Earnings per share (EPS) is a financial ratio indicating the amount of profit or loss for the
period attributable to each equity share and AS 20 gives computational methodology for
determination and presentation of basic and diluted earnings per share.

EPS is of 2 types
➢ Basic EPS
➢ Diluted EPS

Basic Earnings Per Share

Net profit (loss) attributable to equity shareholders
Weighted average number of equity shares outstanding during the period

➢ All items of income and expense which are recognised in a period, including tax expense
and extraordinary items, are included in the determination of the net profit or loss for the
period
➢ The number of shares used in the denominator for basic EPS should be the weighted
average number of equity shares outstanding during the period.

Presentation
An enterprise should present basic and diluted earnings per share on the face of the
statement of profit and loss for each class of equity shares that has a different right to share
in the net profit for the period. An enterprise should present basic and diluted earnings per
share with equal prominence for all periods presented. AS 20 requires an enterprise to
present basic and diluted earnings per share, even if the amounts disclosed are negative (a
loss per share).

Disclosure
An enterprise should disclose the following:
a) Where the statement of profit and loss includes extraordinary items (as defined is AS 5),
basic and diluted EPS computed on the basis of earnings excluding extraordinary items
(net of tax expense);
b) The amounts used as the numerators in calculating basic and diluted earnings per share,
and a reconciliation of those amounts to the net profit or loss for the period;
c) The weighted average number of equity shares used as the denominator in calculating
basic and diluted earnings per share, and a reconciliation of these denominators to each
other; and
d) The nominal value of shares along with the earnings per share figures.

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ASSIGNMENT QUESTIONS
Question 1 (ICAI Study Material) Pg no._____

Date Particulars Purchased Sold Balance

1 January
st
Balance at beginning of year 1800 - 1800
31 May
st
Issue of shares for cash 600 - 2400
1st November Buy back of shares - 300 2100
Calculate weighted number of shares. Calculate Earnings per share also if Net Profit for the
year is ₹ 16,80,000.

Question 2 Pg no._____
From the following information relating to Y Ltd. Calculate Earnings Per Share (EPS):
Particulars ₹ (in crores)
Profit before V.R.S. payments but after depreciation 75.00
Depreciation 10.00
VRS payments 32.10
Provision for taxation 15.00
Paid up share capital (shares of ₹ 10 each fully paid) 93.00

Question 3 (ICAI Study Material) Pg no._____

Date Particulars No. of Shares Face Value Paid up Value

1 January
st
Balance at beginning of year 1800 ₹ 10 ₹ 10
31st October Issue of shares 600 ₹ 10 ₹5
Calculate weighted number of shares.

Question 4 Pg no._____
In April, 2019 a Limited Company issued 1,20,000 equity shares of ₹ 100 each. ₹50 per share
was called up on that date which was paid by all shareholders. The remaining ₹ 50 was called
up on 1.9.2019. All shareholders paid the sum in September, 2019, except on shareholder
having 24,000 shares. The net profit for the year ended 31.3.2020 is ₹ 2,64,000 after dividend
on preference shares of ₹ 64,000.
Compute basic EPS for year ended 31.3.2020 as per AS 20.

Question 5 (ICAI Study Material) Pg no._____

Net profit for the year 2019 ₹ 18,00,000
Net profit for the year 2020 ₹ 60,00,000
No. of equity shares outstanding until 30th Sept 2020 20,00,000
Bonus issue 1st October 2020 was 2 equity shares for each equity share outstanding at 30 th
September, 2020. Calculate Basic Earnings Per Share.

Question 6 Pg no._____
(i) State how would you compute, based on AS-20, the weighted average number of equity
shares in the following case:
Date Particulars No. of Shares
1st April,2019 Balance of equity shares 4,80,000
31 August,2019
st
Equity shares issued for cash 3,60,000
1 February,2020
st
Equity shares bought back 1,80,000
31 March,2020
st
Balance of equity shares 6,60,000

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(ii) Compute adjusted earnings per share and basic EPS based on the following information:
Net profit 2018-19 ₹ 11,40,000
Net profit 2019-20 ₹ 22,50,000
No. of equity shares outstanding until 31st December, 2019 5,00,000
Bonus issue on 1 Jan,2020, 1 equity share for each equity share outstanding at 31st Dec, 2019.
st

Question 7 (ICAI Study Material) Pg no._____

X Ltd. supplied the following information. You are required to compute the basic earnings per
share. (Accounting Year 01.01 to 31.12)
Net Profit For ₹
Year 2021 20,00,000
Year 2022 30,00,000
No of shares outstanding prior to right issue 10,00,000 shares.
Right issue : One new share for each four shares outstanding i.e. 2,50,000 shares.
: Right Issue price ₹ 20
: Last date to exercise right 31st March, 2022
Fair value of one equity share immediately prior to exercise of rights on 31.03.2022 is ₹ 25.

Question 8 (Inter Nov 2023) (5 Marks) Pg no._____

Sapphire Limited earned Net profit of ₹ 39,00,000 and ₹ 59,40,000 for the years 2021-22 &
2022-23 respectively. The following information were given for 2022-2023:
(i) The company declared Rights issue of two new shares for each five outstanding shares.
(ii) 4,00,000 shares were outstanding prior to Rights issue.
(iii) Rights issue price was ₹ 27.50 and the last date to exercise rights was 1st July, 2022.
(iv) Fair value of one equity share immediately prior to exercise of rights on 1st July, 2022 was
₹ 143.
You are required to Compute Basic Earnings Per Share as per AS-20:
1. for the year 2021-22, and
2. for the year 2022-23

Question 9 (ICAI Study Material) Pg no._____

Calculate Diluted EPS.
No. of equity shares outstanding 30,00,000
Basic earnings per share 5
No. of 12% convertible debentures of ₹ 100 each. 50,000
Each debenture is convertible into 10 equity shares
Tax rate 30%

Question 10 Pg no._____
Calculate the diluted earnings per share from the following information:
Net profit for the current year ₹17,10,000
No. of equity shares outstanding 4,00,000
No. of 8% convertible debentures of ₹ 100 each. 20,000
Each debenture is convertible into 10 equity shares
Interest expenses for the current year ₹ 1,20,000
Tax relating to interest expenses 30%

Question 11 (ICAI Study Material) Pg no._____

Net profit for the year 2020 ₹ 12,00,000

Weighted avg. no. of equity shares outstanding during the year 2020 5,00,000 shares

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 CA NITIN GOEL AS 20 CH 10Q

Average fair value of one equity share during the year 2020 ₹ 20.00
Weighted avg. no. of shares under option during the year 2020 1,00,000 shares
Exercise price for shares under option during the year 2020 ₹ 15.00
Compute Basic and Diluted Earnings Per Share.

Question 12 Pg no._____
Calculate Basic EPS & Diluted EPS for the year 2019-20
Earnings ₹ 10 Lacs
01/04/2019 Equity Shares 2,00,000 shares
8% Convertible Debentures ₹ 3,00,000 (convertible into 50,000 equity shares)
9% Convertible ₹ 4,00,000 (convertible into 1,000 equity shares)
Preference Shares
01/07/2019 Shares Warrants Issues 10,000
Consider tax rate of 30%

Question 13 (RTP May 2021) / (ICAI Study Material) Pg no._____

In the following list of shares issued, for the purpose of calculation of weighted average
number of shares, from which date weight is to be considered:
a) Equity Shares issued in exchange of cash,
b) Equity Shares issued as a result of conversion of a debt instrument,
c) Equity Shares issued in exchange for the settlement of a liability of the enterprise,
d) Equity Shares issued for rendering of services to the enterprise,
e) Equity Shares issued in lieu of interest and/or principal of an other financial instrument,
f) Equity Shares issued as consideration for the acquisition of an asset other than in cash.
Also define Potential Equity Share.
Solution
The following dates should be considered for consideration of weights for the purpose of
calculation of weighted average number of shares in the given situations:
a) Date of Cash receivable
b) Date of conversion
c) Date on which settlement becomes effective
d) When the services are rendered
e) Date when interest ceases to accrue
f) Date on which the acquisition is recognised.
A Potential Equity Share is a financial instrument or other contract that entitles, or may entitle
its holder to equity shares.

Question 14 (RTP Nov 2021) Pg no._____

AB Limited is a company engaged in manufacturing industrial packaging equipment. As per
the terms of an agreement entered with its debenture holders, the company is required to
appropriate adequate portion of its profits to a specific reserve over the period of maturity of
the debentures such that, at the redemption date, the reserve constitutes at least half the
value of such debentures. As such appropriations are not available for distribution to the
equity shareholders, AB Limited has excluded this from the numerator in the computation of
Basic EPS. Is this treatment correct as per provisions of AS 20?

Solution
The appropriation made to such a mandatory reserve created for redemption of debentures
would be included in the net profit attributable to equity shareholders for the computation of
Basic EPS. AS 20 states that “For the purpose of calculating basic earnings per share, the net

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profit or loss for the period attributable to equity shareholders should be the net profit or loss
for the period after deducting preference dividends and any attributable tax thereto for the
period”. With an emphasis on the phrase attributable to equity shareholders, it may be
construed that such amounts appropriated to mandatory reserves, though not available for
distribution as dividend, are still attributable to equity shareholders. Accordingly, these
amounts should be included in the computation of Basic EPS. In view of this, the treatment
made by the company is not correct.

Question 15 (RTP May 2022) / (ICAI Study Material) Pg no._____

a) Stock options have been granted by AB Limited to its employees and they vest equally over
5 years, i.e., 20 per cent at the end of each year from the date of grant. The options will vest
only if the employee is still employed with the company at the end of the year. If the
employee leaves the company during the vesting period, the options that have vested can
be exercised, while the others would lapse. Currently, AB Limited includes only the vested
options for calculating Diluted EPS. Should only completely vested options be included for
computation of Diluted EPS? Is this in accordance with the provisions of AS 20? Explain.
b) X Limited, as at March 31, 2021, has income from continuing ordinary operations of ₹
2,40,000, a loss from discontinuing operations of ₹ 3,60,000 and accordingly a net loss of
₹ 1,20,000. The Company has 1,000 equity shares and 200 potential equity shares
outstanding as at March 31, 2021. You are required to compute Basic and Diluted EPS?

Solution
a) AS 20 states that “A potential equity share is a financial instrument or other contract that
entitles, or may entitle, its holder to equity shares”. Options including employee stock
option plans under which employees of an enterprise are entitled to receive equity shares
as part of their remuneration and other similar plans are examples of potential equity
shares. Further, for the purpose of calculating diluted earnings per share, the net profit or
loss for the period attributable to equity shareholders and the weighted average number
of shares outstanding during the period should be adjusted for the effects of all dilutive
potential equity shares.
The current method of calculating Diluted EPS adopted by AB limited is not in
accordance with AS 20. The calculation of Diluted EPS should include all potential equity
shares, i.e., all the stock options granted at the balance sheet date, which are dilutive in
nature, irrespective of the vesting pattern. The options that have lapsed during the year
should be included for the portion of the period the same were outstanding, pursuant to
the requirement of the standard.

b) As per AS 20 “Potential equity shares should be treated as dilutive when, and only when,
their conversion to equity shares would decrease net profit per share or increase loss per
share from continuing ordinary operations”. As income from continuing ordinary
operations, ₹ 2,40,000 would be considered and not ₹ (1,20,000), for ascertaining whether
200 potential equity shares are dilutive or anti-dilutive. Accordingly, 200 potential equity
shares would be dilutive potential equity shares since their inclusion would decrease the
net profit per share from continuing ordinary operations from ₹ 240 to ₹ 200.
Thus, the basic E.P.S would be ₹ (120) and diluted E.P.S. would be ₹ (100).

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PRACTICE QUESTIONS
Question 1 Pg no._____
Compute Basic Earnings per share from the following information:
Date Particulars [Link] Shares
1st April, 2019 Balance at the beginning of the year 1500
1st August, 2019 Issue of shares for cash 600
31 March,2020
st
Buy back of shares 500
Net profit for the year ended 31st March, 2020 was ₹ 2,75,000.

Solution
Computation of weighted average number of shares outstanding during the period
Date [Link] Shares Period Outstanding Weighted average
number of shares
1st April, 2019 1500 12 months 1,500*12/12 = 1,500
1 August, 2019
st
600 8 months 600*8/12 = 400
31 March, 2020
st
500 0 months (500)*0/12 = (0)
1,900

Basic Earnings per share (EPS) = Net profit attributable to equity shareholders
Weighted average number of equity shares O/s during year
= 2,75,000
1,900 Shares
= ₹ 144.74 per share

Question 2 (Inter May 2018) (5 Marks) / (ICAI Study Material) Pg no._____

As at 1st April, 2019 a company had 6,00,000 equity shares of ₹ 10 each ( ₹ 5 paid up by all
shareholders). On 1st September, 2019 the remaining ₹ 5 was called up and paid by all
shareholders except one shareholder having 60,000 equity shares. The net profit for the year
ended 31st March, 2020 was ₹ 21,96,000 after considering dividend on preference shares
totalling to ₹ 3,40,000. Compute Basic EPS for the year ended 31st March, 2020 as per
Accounting Standard 20 "Earnings Per Share".

Solution
Basic Earnings per share (EPS) = Net profit attributable to equity shareholders
Weighted average number of equity shares outstanding
during year
= 21,96,000
4,57,500 Shares (as per working note)
= ₹ 4.80 per share
Working Note:
Calculation of weighted average number of equity shares
As per AS 20 ‘Earnings Per Share’, partly paid equity shares are treated as a fraction of equity
share to the extent that they were entitled to participate in dividend relative to a fully paid
equity share during the reporting period. Assuming that the partly paid shares are entitled to
participate in the dividend to the extent of amount paid, weighted average number of shares
will be calculated as follows:
Date No. of Equity Amount paid Weighted average no. of equity shares
shares per share
1.4.2019 6,00,000 5 6,00,000*5/10*5/12 = 1,25,000

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1.9.2019 5,40,000 10 5,40,000*7/12 = 3,15,000

1.9.2019 60,000 5 60,000*5/10*7/12 = 17,500
Total shares 4,57,500

Question 3 Pg no._____
(i) Explain the concept of ‘weighted average number of equity shares outstanding during the
period’. Also compute weighted average no. of equity shares in the following case:
Date Particulars No. of Shares
1st April,2019 Balance of equity shares 7,20,000
31 August,2019
st
Equity shares issued for cash 2,40,000
1 February,2020
st
Equity shares bought back 1,20,000
31 March,2020
st
Balance of equity shares 8,40,000
(ii) Compute adjusted earnings per share and basic EPS based on the following information:
Net profit 2018-19 ₹ 7,20,000
Net profit 2019-20 ₹ 24,00,000
No. of equity shares outstanding until 31st December, 2019 8,00,000
Bonus issue on 1 Jan, 2020, 2 equity shares for each equity share o/s at 31st December, 2019.
st

Solution
As per AS 20, “Earnings Per Share”, the weighted average number of equity shares
outstanding during the period reflects the fact that the amount of shareholders’ capital may
have varied during the period as a result of a larger or less number of shares outstanding at
any time. For the purpose of calculating basic earnings per share, the number of equity shares
should be the weighted average number of equity shares
outstanding during the period.
Weighted average number of equity shares
7,20,000 X 5/12 3,00,000 shares
9,60,000 X 5/12 4,00,000 shares
8,40,000 X 2/12 1,40,000 shares
8,40,000 shares
Earning per share
Basic EPS 2019-20 = ₹ 24,00,000/24,00,000 = ₹ 1
Adjusted EPS 2018-19 = ₹ 7,20,000/24,00,000 = ₹ 0.30
Since the bonus issue is an issue without consideration, the issue is treated as if it had
occurred prior to the beginning of the year 2018-19, the earliest period reported.

Question 4 (ICAI Study Material) Pg no._____

From the following information compute Basic and Adjusted Earnings per share:
Net Profit for 2018-19 ₹ 11 lakhs
Net Profit for 2019-20 ₹ 15 lakhs
No. of shares before Rights Issue 5 Lakhs
Rights issue Ratio One for Every 5 Held
Issue Price ₹ 15
Last Date of exercising Rights option 01-06-2019
Fair value of share before Rights Issue ₹ 21 per share

Solution
Computation of theoretical ex-rights fair value per share
= Fair value of o/s shares prior to right exercise + Total Amt. received from exercise of rights
Number of shares outstanding prior to exercise + number of shares issued in the exercise

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 CA NITIN GOEL AS 20 CH 10Q

= (21.00 x 5,00,000 shares) + ( 15.00 x 1,00,000 shares)

5,00,000 shares + 1,00,000 shares
Theoretical ex-rights fair value per share = ₹ 20.00
Paid Part in Right Issue = 1,00,000 * 15/20 = 75,000 shares
Bonus Part in Right Issue = 1,00,000 – 75,000 = 25,000 shares
Computation of earnings per share
Year 2018-19 Year 2019-20
EPS for the year 2018-19 as originally reported:
₹ 2.20
(₹ 11,00,000/5,00,000 shares)
EPS for the year 2018-19 restated for rights issue:
₹ 2.10
[₹ 11,00,000/ (5,00,000 shares + 25,000 shares)]
EPS for the year 2019-20 including effects of rights issue
15,00,000 . ₹ 2.55
{(5,00,000 + 25,000)*12/12}+ (75,000 x 10/12)

Alternatively : Computation of adjustment factor

Fair value per share prior to exercise of rights = 21.00 = 1.05
Theoretical ex - rights value per share 20.00
Computation of earnings per share
Year 2018-19 Year 2019-20
EPS for the year 2018-19 as originally reported:
₹ 2.20
(₹ 11,00,000/5,00,000 shares)
EPS for the year 2018-19 restated for rights issue:
₹ 2.10
[₹ 11,00,000/ (5,00,000 shares x 1.05)]
EPS for the year 2019-20 including effects of rights issue
15,00,000 . ₹ 2.55
(5,00,000 x 1.05 x 2/12)+ (6,00,000 x 10/12)

Question 5 (RTP Nov 2023) Pg no._____

Net Profit for 2021-22 30,00,000
Net Profit for 2022-23 50,00,000
No. of shares outstanding prior to Rights Issue20,00,000 shares
Rights issue Ratio One share for each five equity shares
outstanding (i.e. 4,00,000 shares)
Rights Issue Price ₹ 20
Last day to exercise rights 1st June ,2022
Fair value of share before Rights Issue ₹ 26
Compute Basic EPS for FY 2021-22 , FY 2022-23 and restated EPS for FY 2021-22.

Solution
Computation of theoretical ex-rights fair value per share
= Fair value of o/s shares prior to right exercise + Total Amt. received from exercise of rights
Number of shares outstanding prior to exercise + number of shares issued in the exercise
= (26 x 20,00,000 shares) + ( 20 x 4,00,000 shares)
20,00,000 shares + 4,00,000 shares
Theoretical ex-rights fair value per share = ₹ 25
Paid Part in Right Issue = 4,00,000 * 20/25 = 3,20,000 shares
Bonus Part in Right Issue = 4,00,000 – 3,20,000 = 80,000 shares
Computation of earnings per share

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Year 21 – 22 Year 22 – 23
EPS for the year 21 - 22 as originally reported:
1.50
(₹ 30,00,000/20,00,000 shares)
EPS for the year 21 - 22 restated for rights issue:
1.44
[₹ 30,00,000/(20,00,000 shares + 80,000 shares)]
EPS for the year 22-23 including effects of rights issue
50,00,000 . 2.13
{(20,00,000 + 80,000)*12/12}+ (3,20,000 x 10/12)

Question 6 (Inter Nov 2019) (5 Marks) / (RTP May 2023) Pg no._____

Following information is supplied by K Ltd.:
Number of shares outstanding prior to right issue - 2,50,000 shares.
Right issue - two new share for each 5 outstanding shares (i.e. 1,00,000 new shares)
Right issue price – ₹ 98
Last date of exercising rights - 30-06-2019.
Fair value of one equity share immediately prior to exercise of right on 30-06-2019 is ₹ 102.
Net Profit to equity shareholders:
2018-2019 – ₹ 50,00,000
2019-2020 ₹ 75,00,000
You are required to calculate the basic earnings per share as per AS-20 Earnings per Share.

Solution
Computation of theoretical ex-rights fair value per share
= Fair value of o/s shares prior to right exercise + Total Amt. received from exercise of rights
Number of shares outstanding prior to exercise + number of shares issued in the exercise
= (102.00 x 2,50,000 shares) + ( 98.00 x 1,00,000 shares)
2,50,000 shares + 1,00,000 shares
Theoretical ex-rights fair value per share = ₹ 100.86
Paid Part in Right Issue = 1,00,000 * 98/100.86 = 97,164 shares
Bonus Part in Right Issue = 1,00,000 – 97,164 = 2,836 shares
Computation of earnings per share
Year 18 – 19 Year 19 – 20
EPS for the year 18 - 19 as originally reported:
20.00
(₹ 50,00,000/2,50,000 shares)
EPS for the year 18 - 19 restated for rights issue:
19.78
[₹ 50,00,000/(2,50,000 shares + 2,836 shares)]
EPS for the year 19-20 including effects of rights issue
75,00,000 . 23.03
{(2,50,000 + 2,836)*12/12}+ (97,164 x 9/12)

Question 7 (RTP Nov 2020) Pg no._____

A-One Limited supplied the following information. You are required to compute earnings per
share as per AS 20. Net Profit attributable to equity shareholders
Year 2018-19 1,00,00,000
Year 2019-20 1,50,00,000
No of shares outstanding prior to right issue 50,00,000 shares.
Right issue : One new share for each four shares outstanding i.e. 12,50,000 shares.
: Right Issue price ₹ 96
: Last date to exercise right 30th June, 2019
Fair value of one equity share immediately prior to exercise of rights on 30.06.2019 is ₹ 101.

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Solution
Computation of theoretical ex-rights fair value per share
= Fair value of o/s shares prior to right exercise + Total Amt. received from exercise of rights
Number of shares outstanding prior to exercise + number of shares issued in the exercise
= (101.00 x 50,00,000 shares) + ( 96.00 x 12,50,000 shares)
50,00,000 shares + 12,50,000 shares
Theoretical ex-rights fair value per share = ₹ 100
Paid Part in Right Issue = 12,50,000 * 96/100 = 12,00,000 shares
Bonus Part in Right Issue = 12,50,000 – 12,00,000 = 50,000 shares
Computation of earnings per share
Year 18 – 19 Year 19 – 20
EPS for the year 18 - 19 as originally reported:
2.00
(₹ 1,00,00,000/50,00,000 shares)
EPS for the year 18 - 19 restated for rights issue:
1.98
[₹ 1,00,00,000/(50,00,000 shares + 50,000 shares)]
EPS for the year 19-20 including effects of rights issue
1,50,00,000 . 2.52
{(50,00,000 + 50,000)*12/12}+ (12,00,000 x 9/12)

Question 8 (Inter May 2022) (5 Marks) / (ICAI Study Material) Pg no._____

NAT, a listed entity, as on 1st April,2021 had the following capital structure:
₹
10,00,000 Equity Shares having face value of ₹ 1 each 10,00,000
10,00,000 8% Preference Shares having face value of ₹ 10 each 1,00,00,000
During the year 2021-2022, the company had profit after tax of ₹ 90,00,000
On 1st January,2022, NAT made a bonus issue of one equity share for every 2 equity shares
outstanding as at 31st December,2021.
On 1st January,2022, NAT issued 2,00,000 equity shares of ₹ 1 each at their full market price
of ₹ 7.60 per share. NAT's shares were trading at ₹ 8.05 per share on 31st March,2022.
Further it has been provided that the basic earnings per share for the year ended 31st
March,2021 was previously reported at ₹ 62.30.
You are required to:
(i) Calculate the basic earnings per share to be reported in the financial statements of NAT
for the year ended 31st March,2022 including the comparative figure, in accordance with
AS-20 Earnings Per Share.
(ii) Explain why the bonus issue of shares and the shares issue at full market price are
treated differently in the calculation of the basic earnings per share?

Solution
(i) Calculation of Basic Earnings per share for the year ended 31st March, 2022 including
the comparative figure:
(a) Earnings for the year ended 31st March, 2021 = EPS x Number of shares outstanding
during 2020-2021
= ₹ 62.30 x 10,00,000 equity shares = ₹ 6,23,00,000

(b) Adjusted Earnings per share after taking into consideration bonus issue
Adjusted Basic EPS = Earnings for the year 2020-2021
Total outstanding shares +Bonus issue
= ₹ 6,23,00,000 / (10,00,000+ 5,00,000)
= ₹ 6,23,00,000 / 15,00,000 = ₹ 41.53 per share

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(c) Basic EPS for the year 2021-2022

Basic EPS = (Total Earnings – Preference Shares Dividend)
(Total shares outstanding at the beginning + Bonus issue + weighted
average of the shares issued in January, 2022)
= (₹ 90,00,000 – ₹ (1,00,00,000 x 8%) / (10,00,000 + 5,00,000 + (2,00,000 x 3/12))
= ₹ 82,00,000 / 15,50,000 shares = ₹ 5.29 per share
(ii) In case of a bonus issue, equity shares are issued to existing shareholders for no
additional consideration. Therefore, the number of equity shares outstanding is increased
without an increase in resources. Since the bonus issue is an issue without consideration,
the issue is treated as if it had occurred prior to the beginning of the year 2021, the earliest
period reported. However, the share issued at full market price does not carry any bonus
element and usually results in a proportionate change in the resources available to the
enterprise. Therefore, it is taken into consideration from the time it has been issued i.e.
the time- weighting factor is considered based on the specific shares outstanding as a
proportion of the total number of days in the period.

Question 9 (ICAI Study Material) Pg no._____

Net profit for the current year ₹ 1,00,00,000

No. of equity shares outstanding 50,00,000
Basic earnings per share ₹2
No. of 12% convertible debentures of ₹ 100 each. 1,00,000
Each debenture is convertible into 10 equity shares
Interest expense for the current year ₹ 12,00,000
Tax relating to interest expense (30%) ₹ 3,60,000
Compute Diluted Earnings Per Share.

Solution
Adjusted net profit for the current year (1,00,00,000 + 12,00,000 – 3,60,000) = ₹ 1,08,40,000
No. of equity shares resulting from conversion of debentures: 10,00,000 Shares
No. of equity shares used to compute diluted EPS: (50,00,000 + 10,00,000) = 60,00,000 Shares
Diluted earnings per share: (1,08,40,000/60,00,000) = ₹ 1.81

Question 10 (RTP May 2018) Pg no._____

Mohur Ltd. has equity capital of ₹ 40,00,000 consisting of fully paid equity shares of ₹ 10 each.
The net profit for the year 2019-2020 was ₹ 60,00,000. It has also issued 36,000, 10%
convertible debentures of ₹ 50 each. Each debenture is convertible into five equity shares.
The tax rate applicable is 30%. You are required to compute the amount of diluted earnings
for the year 2019-2020.

Solution
Adjusted net profit for the current year (60,00,000 + 1,80,000 – 54,000) = ₹ 61,26,000
No. of equity shares resulting from conversion of debentures: 36,000*5= 1,80,000 Shares
No. of equity shares used to compute diluted EPS: (4,00,000 + 1,80,000) = 5,80,000 Shares
Diluted earnings per share: (61,26,000/1,80,000) = ₹ 10.56

Question 11 (Inter Nov 2018) (5 Marks) Pg no._____

From following information given by Sampark Ltd, Calculate Basis & Diluted EPS as per AS20
₹
Net Profit for the current year 2,50,00,000
No. of Equity Shares Outstanding 50,00,000

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No. of 12% convertible debentures of ₹ 100 each 50,000

Each debenture is convertible into 8 Equity Shares
Interest expense for the current year 6,00,000
Tax saving relating to interest expense (30%) 1,80,000

Solution
Calculation of Basic Earnings Per Share
Net Profit for the current year
Basic EPS =
No. of Equity Shares
2,50,00,000
=
50,00,000
Basic EPS per share = ₹5

Calculation of Diluted Earnings Per Share

Adjusted net profit for the current year
Diluted EPS =
Weighted average no. of Equity Shares
Adjusted net profit for the current year ₹
Net profit for the current year 2,50,00,000
Add: Interest expenses for the current year 6,00,000
Less: Tax saving relating to Tax Expenses (1,80,000)
2,54,20,000
No. of equity shares resulting from conversion of debentures: 4,00,000 Shares
Weighted average no. of equity shares used to compute diluted EPS: (50,00,000 + 4,00,000) =
54,00,000 Equity Shares
Diluted earnings per share: (2,54,20,000/54,00,000) = ₹ 4.71 (Approx.)

Question 12 (RTP May 2019) Pg no._____

“While calculating diluted EPS, effect is given to all dilutive potential equity shares that were
outstanding during that period.” Explain this statement in the light of relevant AS.
Also calculate the diluted earnings per share from the following information:
Net profit for the current year (after tax) ₹1,00,00,000
No. of equity shares outstanding 10,00,000
No. of 10% convertible debentures of ₹ 100 each. 1,00,000
(Each debenture is compulsorily & fully convertible into 10 equity shares)
Debenture interest expenses for the current year ₹ 5,00,000
Assume applicable income tax rate @ 30%

Solution
“In calculating diluted earnings per share, effect is given to all dilutive potential equity shares
that were outstanding during the period.” As per AS 20 ‘Earnings per Share’, the net profit or
loss for the period attributable to equity shareholders and the weighted average number of
shares outstanding during the period should be adjusted for the effects of all dilutive potential
equity shares for the purpose of calculation of diluted earnings per share.
Computation of diluted earnings per share = Adjusted net profit for the current year
Weighted average number of equity shares
Net profit for the current year 1,00,00,000
Add: Interest expense for the current year 5,00,000
Less: Tax relating to interest expense (30% of ₹ 5,00,000) (1,50,000)
Adjusted net profit for the current year 1,03,50,000

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Note: Conversion of convertible debentures into Equity Share is a dilutive potential equity
shares. Hence, to compute the adjusted profit the interest paid on such debentures will be
added back as the same would not be payable in case these are converted into equity shares.
Weighted average number of equity shares
Number of equity shares resulting from conversion = (1,00,000 X 100)/10 = 10,00,000
Weighted average number of equity shares used to compute diluted earnings per share
= [(10,00,000 x 12) + (10,00,000 x 6*)]/12 = 15,00,000 shares
*Interest on debentures for full year amounts to ₹ 10,00,000 (i.e. 10% of ₹ 1,00,00,000).
However, interest expense amounting ₹ 5,00,000 has been given in the question. It may be
concluded that debentures have been issued during the year and interest has been provided
for 6 months.
Diluted earnings per share = 1,03,50,000 = ₹ 6.90 per share
15,00,000 shares

Question 13 (RTP May 2018/RTP Nov 2019 (Sim.)/RTP May 2020)/Nov 2022 (Similar) Pg no._____
The following information relates to M/s. XYZ Limited for the year ended 31st March, 2020:
Net Profit for the year after tax: ₹ 75,00,000
Number of Equity Shares of ₹ 10 each outstanding: ₹ 10,00,000
Convertible Debentures Issued by the Company (at the beginning of the year)
Particulars No.
8% Convertible Debentures of ₹ 100 each 1,00,000
Equity Shares to be issued on conversion 1,10,000
The Rate of Income Tax: 30%. Calculate Basic and Diluted Earnings Per Share (EPS).

Solution
Basic Earnings per share (EPS) = Net profit attributable to equity shareholders
Weighted average no. of equity shares o/s during year
= 75,00,000 = ₹ 7.5 per share
10,00,000 Shares
Computation of diluted earnings per share = Adjusted net profit for the current year
Weighted average number of equity shares
Net profit for the current year 75,00,000
Add: Interest expense for the current year 8,00,000
Less: Tax relating to interest expense (30% of ₹ 8,00,000) (2,40,000)
Adjusted net profit for the current year 80,60,000
Number of equity shares resulting from conversion of deb. = 1,10,000 Equity shares (given)
Weighted average number of equity shares used to compute diluted earnings per share
= 11,10,000 shares (10,00,000 + 1,10,000)
Diluted earnings per share = 80,60,000 = ₹ 7.26 per share
11,10,000 shares

Question 14 (Inter Dec 2021) (5 Marks) Pg no._____

“At the time calculating diluted earnings per share, effect is given to all dilutive potential
equity shares that are outstanding during the period”. Comment and also calculate the basic
and diluted earnings per share for the year 2020-21 from the following information:
Net profit after tax for the year 64,12,500
No. of equity shares outstanding 15,00,000
No. of 9% convertible debentures of ₹ 100 each issued on 1 July,2020
st
75,000
Each debenture is convertible into 8 equity shares
Tax relating to interest expense 35%

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 CA NITIN GOEL AS 20 CH 10Q

Solution
In calculating diluted earnings per share, effect is given to all dilutive potential equity shares
that were outstanding during the period.” As per AS 20 ‘Earnings per Share’, the net profit or
loss for the period attributable to equity shareholders and the weighted average number of
shares outstanding during the period should be adjusted for the effects of all dilutive
potential equity shares for the purpose of calculation of diluted earnings per share.
Basic EPS for the year 2020-21= 64,12,500/15,00,000 = ₹ 4.275 or ₹ 4.28
Computation of diluted earnings per share = Adjusted net profit for the current year
Weighted average number of equity shares
Adjusted net profit for the current year will be (64,12,500 + 5,06,250 – 1,77,188) = ₹ 67,41,562
No. of equity shares resulting from conversion of debentures: 6,00,000 Shares (75,000 × 8)
Weighted average no. of equity shares used to compute diluted EPS: (15,00,000 X12/12+
6,00,000X9/12) = 19,50,000 Shares
Diluted earnings per share: (67,41,562/19,50,000) = ₹ 3.46
Working Note:
Interest expense for 9 months = 75,00,000×9%×9/12 =₹ 5,06,250
Tax expense 35 % on interest is ₹1,77,188 (5,06,250 x 35%)

Question 15 (Inter Nov 2022) (5 Marks) Pg no._____

The following information is provided to you:
Net profit for the year 2022: ₹72,00,000
Weighted average number of equity shares outstanding during 30,00,000
the year 2022: shares
Average Fair value of one equity share during the year 2022: ₹ 25.00
Weighted average number of shares under option during 6,00,000
the year 2022: shares
Exercise price for shares under option during the year 2022: ₹ 20.00
You are required to compute Basic and Diluted Earnings Per Share as per AS 20.

Solution:
Computation of Basic earnings per share
Earnings Shares Earnings/
Share
Net profit for the year 2022 72,00,000
Weighted average no. of shares during year 2022 30,00,000
Basic earnings per share (72,00,000/30,00,000) 2.40
Computation of Diluted earnings per share
Earnings Shares Earnings/Share
Net profit for the year 2022 72,00,000
Weighted average no. of shares during year 2022 30,00,000
Number of shares under option 6,00,000
Number of shares that would have been issued (4,80,000)
at fair value (6,00,000 x 20.00)/25.00
Diluted earnings per share 72,00,000 31,20,000 2.31
(rounded-off)
Note: The earnings have not been increased as the total number of shares has been
increased only by the number of shares (1,20,000) deemed for the purpose of the
computation to have been issued for no consideration. To the extent that partly paid shares
are not entitled to participate in dividends during the reporting period they are considered
the equivalent of options.

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Question 16 Pg no._____
For Accounting year 1-4-2019 to 31-3-2020
Net profit attributable to equity shareholders 1,00,00,000
No. of equity shares outstanding 20,00,000
Average fair value of one equity share during the year 75
Potential Equity Shares
Options 1,00,000 with exercise price of ₹ 60
Convertible Preference 8,00,000 shares entitled to cumulative dividend of ₹8 per share.
Shares Each preference share is convertible into 2 equity shares
12% Convertible Nominal amount ₹ 10,00,00,000. Each debenture is convertible
Debentures of ₹ 100 each into 4 equity shares.
Tax rate 30%
Calculate diluted earnings per share as per AS 20.

Solution
Incremental Earnings per share (IEPS) = Increase in Earnings
Increase in number of equity shares
(1) Options
IEPS = Nil = Nil
20,000 Shares*
*1,00,000*(75-60)/75 = 20,000
(2) Convertible Preference Shares
IEPS = (8*8,00,000) = 64,00,000 = 4
(2*8,00,000) 16,00,000
(3) Convertible Debentures
IEPS = (10,00,00,000)*12%*(1-0.30)
(4*10,00,000)
= 84,00,000 = 2.10
40,00,000

It may be noted from the above that options are most dilutive as their earnings per
incremental share is nil. Hence, for the purpose of computation of diluted earnings per share,
options will be considered first. 12% convertible debentures being second most dilutive will
be considered next and thereafter convertible preference shares will be considered.
Conversion of Diluted Earnings Per Share
Net Profit No. of Equity Earnings
Attributable Shares per Share
As reported 1,00,00,000 20,00,000 5
Options - 20,000
1,00,00,000 20,20,000 4.95 Dilutive
12% Convertible Debentures 84,00,000 40,00,000
1,84,00,000 60,20,000 3.06 Dilutive
Convertible Preference Shares 64,00,000 16,00,000
2,48,00,000 76,20,000 3.25 Anti Dilutive
Since diluted earnings per share is increased when taking the convertible preference shares
into account (from ₹ 3.06 to ₹ 3.25), the convertible preference shares are anti-dilutive and
are ignored in the calculation of diluted earnings per share. Therefore, diluted earnings per
share is ₹ 3.06.

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